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Informist, Monday, Oct. 20, 2025

By Aaryan Khanna

NEW DELHI – The interbank call money rate ended above the policy repo rate of 5.50% due to demand for funds from banks before two holidays for Diwali amid goods and services tax outflows, dealers said. Banks continued to secure last-minute funding even after borrowing INR 1.63 trillion from the Reserve Bank of India through two variable rate repo auctions, they said. Money markets are shut on Tuesday and Wednesday.

The three-day call rate ended at 5.62%, up from Saturday's two-day rate of 5.24%. The weighted average call rate was 5.61%, up from 5.06% on Saturday and 5.59% on Friday. The weighted average triparty repo rate cooled to 5.44% Monday from 5.52% Saturday after the RBI held two VRR auctions.

The RBI initially conducted a four-day INR 1.75-trillion auction, accepting all bids worth INR 1.51 trillion at a cut-off rate of 5.51%. Surprisingly, it then announced another three-day auction for INR 500 billion. This second auction was likely bid at by a state-owned bank, which was a single bidder as most banks had met their funding requirements for the GST outflows through the four-day operation, dealers said. The RBI accepted all bids worth INR 120 billion at the second VRR auction, setting a cut-off rate of 5.52%.

"The VRRs saved the market, otherwise we would be in a bad state. The GST outflows and Diwali time has coincided, which is the worst case for the ALM (asset-liability management) desk," a dealer at a state-owned bank said. "Liquidity surplus in the system is not enough to deal with everything. Banks may also reduce cash balances today (Monday)."

The surplus liquidity in the banking system as measured by the RBI's net liquidity absorbed was INR 464.46 billion Sunday, slightly higher than INR 438.58 billion Saturday. GST payments alone are expected to drain INR 1.5 trillion to INR 2.0 trillion from the banking system. Diwali-related spending is not likely to drain banking system liquidity but creates cash mismatches for certain banks that they needed to prepare for over the next two days, dealers said.

OUTLOOK

Money markets are shut on Tuesday and Wednesday for Diwali. On Thursday, the one-day call money rate may open near the RBI's repo rate owing to tight systemic liquidity after GST-related outflows, dealers said.

* During the day, the one-day call money rate is seen in the range of 4.90-5.70%, dealers said. On Thursday, the RBI will conduct an overnight variable rate repo auction of INR 500 billion at 0930-1000 IST. The reversal of a VRR auction held Monday will drain INR 120 billion from liquidity.

CALL RATE

5.62%--Monday's close for three-day loans

5.63%--Monday's open for three-day loans

5.24%--Saturday's close for two-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Off highs as RBI conducts 2 VRR auctions

MUMBAI – The interbank call money rate eased from the highs touched in early trade and was at the Reserve Bank of India's repo rate of 5.50% after the central bank infused INR 1.63 trillion worth of liquidity into the banking system through two variable rate repo auctions Monday, dealers said. 

The three-day call rate was last traded at 5.50%, however, the the weighted average call rate was at 5.62% due to the early rush for funds. Trade volume in the call money market was INR 151.26 billion at 1530 IST, slightly higher than INR 147.83 billion at the same time Friday. Meanwhile, the triparty repo rate was last traded at 5.16%, with the weighted average rate at 5.45%. 

"The second VRR auction was just for festive cash requirements," a dealer at a state-owned bank said. "Most people had already borrowed in the four-day one (auction) because no one was thinking that that the second VRR will come. The second one was probably taken by a single big PSU (state-owned bank) alone."

The RBI conducted a four-day INR-1.75-trillion auction and another INR 500 billion theee-day VRR auction Monday. This gave some comfort to market participants, and mutual funds and some big state-owned banks who refrained from lending in early trading session, started lending in money market. This also led to the fall in rates, dealers said. 

The surplus liquidity in the banking system as measured by the RBI's net liquidity absorbed was INR 464.46 billion Friday, down from INR 438.58 billion Saturday. Some dealers had expected the system liquidity to fall into a deficit due to outflows from goods and service tax payments, which is pegged to drain a total of INR 1.6 trillion to INR 2.00 trillion worth of liquidity. However, the VRR auctions conducted by the RBI Monday is seen to limit the fall in liqiuidity, dealers said. Dealers expect the three-day call rate to hover within a range of 4.80-5.50% during the rest of the day.  (Srijita Bose)

India Call: Above RBI's repo on fund requirements for Diwali, GST outflows

MUMBAI – The interbank call money rate was above the Reserve Bank of India's repo rate of 5.50% Monday on demand for funds due to outflows for Goods and Services Tax payments, dealers said. Rates may rise above the RBI's Standing Deposit Facility after the three-day variable rate repo auction, they said. 

The three-day call rate was at 5.60% at 0946 IST, higher than the 5.24% close for two-day loans on Saturday. RBI-administered markets will be shut on Tuesday and Wednesday for Diwali. The weighted average call rate was 5.64%, against 5.04% on Saturday. Trade volume in the call money market was INR 24.34 billion at 0930 IST, against INR 50.27 billion at the same time Friday.

Meanwhile, the triparty repo rate was 5.59% at 0946 IST, against 5.51% Saturday. The weighted average triparty repo rate was 5.56%, higher than 5.52% on Saturday. 

In the first hour of trade, market participants rushed to borrow in the call market on expectations of rates rising further later in the day, dealers said. Primary dealers borrowed primarily for settlement of the INR 300-billion gilt auction held Friday.

"There is a lot of demand today, and depending on how much the VRR (auction) is subscribed rates could also rise," a dealer at a private sector bank said. "There is some cash crunch and people will have to position for the holiday as well." At the four-day variable rate repo auction for INR 1.75 trillion, an Informist poll of market participants estimates subscription at INR 1.65 trillion. 

Meanwhile, banks, corporates and other non-banking financial companies borrowed from the secured triparty repo segment as rates were lower than the call money market to make up for the cash withdrawals during the festival season, dealers said. Outflows or cash withdrawals of up to INR 350 billion are also expected for Diwali, as consumer spending is seen up following a cut in goods and service tax rates, dealers said.

Some market participants also borrowed funds as loan disbursements picked up ahead of Diwali, dealers said. Outstanding credit of commercial banks as detailed by the RBI was at a total of INR 192.66 trillion as on Oct. 3, against INR 189.03 trillion in the preceding fortnight. 

Meanwhile, GST payments, which usually begin from the beginning of the third week of every month, are likely to have already drained around INR 200 billion last week, and are expected to drain around INR 1 trillion Monday, dealers said. This is expected to raise demand for funds later in the day, they said.

The surplus liquidity in the banking system, as measured by the RBI's net liquidity absorbed, was INR 988.83 billion Friday, down from INR 1.41 trillion Thursday. Dealers said that part of the outflows on Friday was due to GST payments and others due to RBI's dollar sales in the foreign exchange spot market on Wednesday, the settlement for which was Friday. Liquidity in the system could turn into a deficit Tuesday due to the GST outflows, some dealers said.  (Srijita Bose)

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Ashish Shirke

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